Westpac NZ lifts annual profit 6%, forgoes some mortgage lending growth to protect margins

Monday 2nd November 2015

Westpac Banking Corp's New Zealand division lifted annual earnings 6 percent as it ceded market share in the hotly contested mortgage market to protect margins, which lag behind its local peers.

Cash earnings in the local business rose to $916 million in the 12 months ended Sept. 30, from $864 million a year earlier, the Sydney-based parent said in a statement. Net interest income gained 8 percent to $1.71 billion, as the lender's total loan book expanded 7 percent to $69 billion.

The Australian group reported a 3 percent increase in cash earnings to A$7.82 billion, with net interest income up 6 percent to A$14.24 billion. Net profit advanced 2 percent to A$7.88 billion. The board declared a final dividend of 94 Australian cents per share, payable on Dec. 21, and taking the annual payment to A$1.87, up 3 percent from a year earlier.

While Westpac New Zealand grew its mortgage business to $41.9 billion from $39.6 billion a year earlier, that was a smaller expansion than system growth, "as the division prioritised maintaining margins."

The local unit lifted its net interest margin four basis points to 2.31 percent over the year as lending competition and increased demand for less-profitable fixed-term loans offset cheaper funding costs.

That's still lower than the other major banks, with Bank of New Zealand's net interest margin at 2.39 percent, ASB Bank at 2.44 percent, and ANZ Bank New Zealand at 2.48 percent. While BNZ and ASB widened their interest margins in their latest reporting periods, ANZ gave up 9 basis points due to the heightened competition for mortgages and growing use of fixed-term loans.

Westpac New Zealand fared better in business lending, which expanded 9 percent to $25.1 billion, ahead of the rest of the market, with growth in agricultural lending and food manufacturing. Deposits grew 5 percent to $51.9 billion in the year.

The lender took an impairment charge of $47 million in the year, up from $26 million a year earlier when it reversed some write-offs, while asset quality improved with mortgage delinquencies beyond 90 days shrinking to 0.14 percent from 0.21 percent a year earlier, and other loans past 90 days falling to 0.55 percent from 0.75 percent.

The group is in the process of raising A$3.5 billion from retail and institutional investors to beef up its capital ratios in the face of tougher regulatory requirements. All of Australia's big four lenders have been raising capital to meet new requirements from the Australian Prudential Regulation Authority, which requires them to hold more capital on their books to mitigate the risk of losses on home loans.

Westpac's dual-listed shares were unchanged at $33.15 on the NZX, and traded at A$31.38 on the ASX before the market open.

BusinessDesk.co.nz

Comments from our readers

No comments yet